Mark Thoma gives a nice rundown of the trend of economic thought, but grants little Insight into the viable level of government intervention within the economy. I will start with my doubt that government can stimulate anything, especially the Taxpayers who are later forced to pay for the stupidity. The second statement I would make would be to keep it simple–Stupid! Government stimulus will never devolve through more than one level of performance, after which normal Profit-Taking by Rent Seekers will absorb any benefits which could apply. Some children may not know of which I speak, but I will simply refer them to Charities, where only 30% of most Contributions actually go to Anyone but the traditional Rent Seekers. Volunteerism has become a dirty word, and Business has enshrined a 20% Profit. What does all this mean to the Taxpayer and Economy?
The Fed and Treasury paid Big Business big bucks, and the Small Business still could not get an Operating loan. Big Brokerages received a wealth of Cash, and Stockholders lost Money. Paying at the Top does in no way guarantee a more open Spigot at the bottom; in actuality, it often means a tighter closure with unmoveable handle, simply to supply the great Profit ratios for the major Players. Devaluing the Dollar simply means that the large mass of Retirees and older Labor find they were paid much less for their labors in previous years, with no growth in Production to make up even a Tenth of the Cost. The major Players, though, love all of the Above simply because they can record such Profits to their own benefit, and almost no one else.
So here is where it stands: Government can help, but only in a very involved mode; no paying Others to do the scrub work of Stimulus. Government can stimulate if they hire labor themselves in massive quantities; such labor requiring only Minimum Wages being paid because of the Cost. It is not bad, though, because such Wages almost all convert to Consumption; people taking such Jobs really need the Work, and know exactly how to distribute the Income. Loans by Government to Business, even small business, only bring dis-economies; the guiding element here being such Business activity is consequence of Government loan practice, and almost All must be considered uneconomical under natural economic conditions. Tax Cuts are relatively purposeless, granting the Savers a greater build-up of Cash reserves, while Investing is still totally governed by the basic principles of Supply and Demand; which never calls for extended Production under recessionary conditions with reduced Consumption. Government can make a difference, but will never achieve that difference if the Rent Seekers are allowed to formulate policy. lgl